+91-22-48913909Ultra Short Term Bond Funds
When you have idle cash lying in your account — and don’t want to lock it in a Fixed Deposit — Ultra short term funds offer an efficient, flexible solution. They strike the right balance between liquidity, stability, and better-than-savings-account returns.
If you’ve ever asked yourself, “Where can I park money for a few months without compromising on safety or returns?” — this guide has the answer.
What are Ultra Short Term Bond Funds?
Ultra Short Term Bond Funds (USTFs) are open-ended debt Mutual Funds that invest primarily in short-term fixed-income instruments, such as:
- Treasury Bills (T-Bills)
- Certificates of Deposit (CDs)
- Commercial Papers (CPs)
- Short-term Corporate Bonds or Non-Convertible Debentures (NCDs)
The average maturity of these instruments typically ranges between 3 months and 1 year. In some cases, fund managers may extend the duration slightly up to 1.5 years. Earlier known as Liquid Plus Funds, these funds provide slightly higher returns than Liquid Funds while maintaining comparable risk levels.
Core Objective - USTFs seek to generate steady income with low Volatility, making them ideal for investors looking to park money for 3 to 12 months without taking equity-like risks.
Key Features of Ultra Short Term Funds
1. Fund Type & Nature
| Attribute | Details |
|---|---|
| Category | Open-ended Debt Fund |
| Investment Horizon | 3 months to 1 year |
| Liquidity | Redeemable anytime based on daily NAV |
| Use Case | Short-term parking for surplus money with returns higher than savings or current accounts |
2. NAV Calculation (T+0 Basis)
For most USTFs, purchases are processed on a T+0 basis, meaning the same day’s NAV is applicable if the investment and funds reach the AMC before the cut-off time (usually 3 PM).
Example: If you invest before 3 PM on Tuesday and the funds are received by the AMC, you’ll get Tuesday’s NAV. Investments made after 3 PM are allotted the next working day’s NAV.
3. Exit Load
Some Ultra Short Term Funds may impose a small exit load (usually 0.25%–0.5%) if you withdraw within 7 to 30 days. However, many schemes offer zero exit load, making them almost as liquid as cash.
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4. Expected Returns
USTFs typically deliver returns in the range of 6.5% to 8.5% per annum, depending on interest rate movements and credit quality of holdings. They tend to outperform savings accounts (3–4%) and short-term FDs (5–6%), while carrying slightly higher risk.
Return Options:
- Growth Plan: Capital appreciation through NAV increase.
- Dividend Plan: Regular income via dividends (now taxable as per slab).
5. Redemption and Liquidity
Redemption requests placed before 3 PM are processed on a T+1 basis (credited the next working day). Requests after 3 PM are processed a day later.
✅ Result: USTFs offer near-instant liquidity, making them one of the most flexible debt categories in India.
6. Minimum Investment
Most AMCs allow investments starting from ₹5,000 to ₹10,000. Some platforms also allow SIPs starting at ₹500.
Where Do Ultra Short Term Funds Invest?
| Instrument | Typical Maturity | Description |
|---|---|---|
| Treasury Bills (T-Bills) | 91 to 364 days | Government-issued, virtually risk-free |
| Certificates of Deposit (CDs) | 3 to 12 months | Short-term borrowings by banks |
| Commercial Papers (CPs) | 3 to 12 months | Corporate borrowings for working capital |
| Corporate Bonds / NCDs | 6 months to 1.5 years | Offer higher yields with moderate risk |
- Fund managers aim to maintain high credit quality (AAA or sovereign) while earning slightly better yields than liquid funds.
- Note: While defaults are rare, these funds are not completely risk-free. Sudden interest rate changes or low-rated instruments can impact returns.
Why Should You Invest in Ultra Short Term Funds?
1. Better Yields than Bank Accounts
- Earn 6–8% annually versus 3–4% in savings accounts — without locking your money long-term.
2. High Liquidity
- T+1 redemption and minimal exit load make these funds ideal for emergency or temporary parking.
3. Suitable for Surplus Cash
- Perfect for individuals, businesses, and freelancers who need a safe, liquid holding zone for idle funds.
4. Low Interest Rate Sensitivity
- Short maturities shield the Portfolio from rate fluctuations, ensuring stable NAV performance.
5. Smart Use for STPs
- Investors often use USTFs as a base for Systematic Transfer Plan (STPs) into Equity Funds — reducing market timing risk.
Taxation Rules for Ultra Short Term Funds (Post-April 2023)
With the 2023 amendment, all debt mutual funds — including Ultra Short Term Funds — are now taxed at slab rates, regardless of the holding period.
| Type | Holding Period | Tax Treatment |
|---|---|---|
| Short-Term Capital Gains (STCG) | < 3 years | Taxed as per income tax slab |
| Long-Term Capital Gains (LTCG) | ≥ 3 years | Also taxed as per slab (no indexation) |
| Dividends | Anytime | Added to total income; no DDT now |
📌 Earlier, dividends were tax-free in investors’ hands, but AMCs paid Dividend Distribution Tax (DDT). This has been discontinued.
Example: How Ultra Short Term Funds Outperform Savings Accounts
| Investment Type | Amount | Expected Return | Tenure | Final Value |
|---|---|---|---|---|
| Savings Account | ₹1,00,000 | 3.5% | 12 months | ₹1,03,500 |
| Ultra Short Term Fund | ₹1,00,000 | 7.5% | 12 months | ₹1,07,500 |
Even after taxes, the net gain remains higher for investors in USTFs, especially in higher income brackets.
Fund Selection Methodology used to find 3 funds
Best Performing Ultra Short Debt Funds to Invest FY 25 - 26
Below is the list of top funds have net assets over 100 Crore and managing assets for atleast 3 years.
Fund NAV Net Assets (Cr) 1 MO (%) 3 MO (%) 6 MO (%) 1 YR (%) 3 YR (%) 5 YR (%) Franklin India Ultra Short Bond Fund - Super Institutional Plan Growth ₹34.9131
↑ 0.04 ₹297 0.6 1.3 5.9 13.7 8.8 8.7 Aditya Birla Sun Life Savings Fund Growth ₹563.709
↑ 0.12 ₹22,389 0.6 1.6 3.4 7.7 7.5 6.2 ICICI Prudential Ultra Short Term Fund Growth ₹28.4403
↑ 0.01 ₹17,841 0.5 1.6 3.2 7.3 7.2 6 Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 7 Aug 22 Research Highlights & Commentary of 3 Funds showcased
Commentary Franklin India Ultra Short Bond Fund - Super Institutional Plan Aditya Birla Sun Life Savings Fund ICICI Prudential Ultra Short Term Fund Point 1 Bottom quartile AUM (₹297 Cr). Highest AUM (₹22,389 Cr). Lower mid AUM (₹17,841 Cr). Point 2 Established history (17+ yrs). Oldest track record among peers (22 yrs). Established history (14+ yrs). Point 3 Rating: 1★ (bottom quartile). Top rated. Rating: 3★ (lower mid). Point 4 Risk profile: Moderate. Risk profile: Moderately Low. Risk profile: Moderate. Point 5 1Y return: 13.69% (upper mid). 1Y return: 7.65% (lower mid). 1Y return: 7.25% (bottom quartile). Point 6 1M return: 0.59% (upper mid). 1M return: 0.57% (lower mid). 1M return: 0.54% (bottom quartile). Point 7 Sharpe: 2.57 (bottom quartile). Sharpe: 3.40 (upper mid). Sharpe: 2.79 (lower mid). Point 8 Information ratio: 0.00 (upper mid). Information ratio: 0.00 (lower mid). Information ratio: 0.00 (bottom quartile). Point 9 Yield to maturity (debt): 0.00% (bottom quartile). Yield to maturity (debt): 6.81% (upper mid). Yield to maturity (debt): 6.64% (lower mid). Point 10 Modified duration: 0.00 yrs (upper mid). Modified duration: 0.47 yrs (bottom quartile). Modified duration: 0.40 yrs (lower mid). Franklin India Ultra Short Bond Fund - Super Institutional Plan
Aditya Birla Sun Life Savings Fund
ICICI Prudential Ultra Short Term Fund
To provide a combination of regular income and high liquidity by investing primarily in a mix of short term debt and money market instruments. Below is the key information for Franklin India Ultra Short Bond Fund - Super Institutional Plan Returns up to 1 year are on The primary objective of the schemes is to generate regular income through investments in debt and money market instruments. Income maybe generated through the receipt of coupon payments or the purchase and sale of securities in the underlying portfolio. The schemes will under normal market conditions, invest its net assets in fixed income securities, money market instruments, cash and cash equivalents. Research Highlights for Aditya Birla Sun Life Savings Fund Below is the key information for Aditya Birla Sun Life Savings Fund Returns up to 1 year are on (Erstwhile ICICI Prudential Regular Income Fund) The fund’s objective is to generate regular income through investments primarily in debt and money market instruments. As a secondary objective, the Scheme also seeks to generate long term capital appreciation from the portion of equity investments under the Scheme. Research Highlights for ICICI Prudential Ultra Short Term Fund Below is the key information for ICICI Prudential Ultra Short Term Fund Returns up to 1 year are on 1. Franklin India Ultra Short Bond Fund - Super Institutional Plan
Franklin India Ultra Short Bond Fund - Super Institutional Plan
Growth Launch Date 18 Dec 07 NAV (07 Aug 22) ₹34.9131 ↑ 0.04 (0.11 %) Net Assets (Cr) ₹297 on 31 Jul 22 Category Debt - Ultrashort Bond AMC Franklin Templeton Asst Mgmt(IND)Pvt Ltd Rating ☆ Risk Moderate Expense Ratio 0.52 Sharpe Ratio 2.57 Information Ratio 0 Alpha Ratio 0 Min Investment 10,000 Min SIP Investment 500 Exit Load NIL Yield to Maturity 0% Effective Maturity 1 Year 15 Days Modified Duration Growth of 10,000 investment over the years.
Date Value 31 Oct 20 ₹10,000 31 Oct 21 ₹10,956
Purchase not allowed Returns for Franklin India Ultra Short Bond Fund - Super Institutional Plan
absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 7 Aug 22 Duration Returns 1 Month 0.6% 3 Month 1.3% 6 Month 5.9% 1 Year 13.7% 3 Year 8.8% 5 Year 8.7% 10 Year 15 Year Since launch 8.9% Historical performance (Yearly) on absolute basis
Year Returns 2024 2023 2022 2021 2020 2019 2018 2017 2016 2015 Fund Manager information for Franklin India Ultra Short Bond Fund - Super Institutional Plan
Name Since Tenure Data below for Franklin India Ultra Short Bond Fund - Super Institutional Plan as on 31 Jul 22
Asset Allocation
Asset Class Value Debt Sector Allocation
Sector Value Credit Quality
Rating Value Top Securities Holdings / Portfolio
Name Holding Value Quantity 2. Aditya Birla Sun Life Savings Fund
Aditya Birla Sun Life Savings Fund
Growth Launch Date 16 Apr 03 NAV (28 Nov 25) ₹563.709 ↑ 0.12 (0.02 %) Net Assets (Cr) ₹22,389 on 31 Oct 25 Category Debt - Ultrashort Bond AMC Birla Sun Life Asset Management Co Ltd Rating ☆☆☆☆☆ Risk Moderately Low Expense Ratio 0.55 Sharpe Ratio 3.4 Information Ratio 0 Alpha Ratio 0 Min Investment 1,000 Min SIP Investment 1,000 Exit Load NIL Yield to Maturity 6.81% Effective Maturity 6 Months 22 Days Modified Duration 5 Months 19 Days Growth of 10,000 investment over the years.
Date Value 31 Oct 20 ₹10,000 31 Oct 21 ₹10,401 31 Oct 22 ₹10,849 31 Oct 23 ₹11,626 31 Oct 24 ₹12,522 31 Oct 25 ₹13,485 Returns for Aditya Birla Sun Life Savings Fund
absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 7 Aug 22 Duration Returns 1 Month 0.6% 3 Month 1.6% 6 Month 3.4% 1 Year 7.7% 3 Year 7.5% 5 Year 6.2% 10 Year 15 Year Since launch 7.4% Historical performance (Yearly) on absolute basis
Year Returns 2024 7.9% 2023 7.2% 2022 4.8% 2021 3.9% 2020 7% 2019 8.5% 2018 7.6% 2017 7.2% 2016 9.2% 2015 8.9% Fund Manager information for Aditya Birla Sun Life Savings Fund
Name Since Tenure Sunaina Cunha 20 Jun 14 11.38 Yr. Kaustubh Gupta 15 Jul 11 14.31 Yr. Monika Gandhi 22 Mar 21 4.62 Yr. Data below for Aditya Birla Sun Life Savings Fund as on 31 Oct 25
Asset Allocation
Asset Class Value Cash 49.2% Debt 50.56% Other 0.24% Debt Sector Allocation
Sector Value Corporate 47.85% Cash Equivalent 39.2% Government 12.71% Credit Quality
Rating Value AA 28.73% AAA 71.27% Top Securities Holdings / Portfolio
Name Holding Value Quantity Shriram Finance Limited
Debentures | -3% ₹614 Cr 60,000 Nirma Limited
Debentures | -2% ₹487 Cr 48,500 07.22 GJ Sdl 2028
Sovereign Bonds | -2% ₹376 Cr 37,500,000 Muthoot Finance Limited
Debentures | -2% ₹352 Cr 35,000
↑ 10,000 Mankind Pharma Limited
Debentures | -1% ₹348 Cr 34,500 Bank of Baroda
Debentures | -1% ₹344 Cr 7,000 National Bank For Agriculture And Rural Development
Debentures | -1% ₹341 Cr 3,400 Avanse Financial Services Limited
Debentures | -1% ₹301 Cr 30,000 Power Finance Corporation Limited
Debentures | -1% ₹298 Cr 30,000 ICICI Home Finance Company Limited
Debentures | -1% ₹272 Cr 27,000 3. ICICI Prudential Ultra Short Term Fund
ICICI Prudential Ultra Short Term Fund
Growth Launch Date 3 May 11 NAV (28 Nov 25) ₹28.4403 ↑ 0.01 (0.02 %) Net Assets (Cr) ₹17,841 on 31 Oct 25 Category Debt - Ultrashort Bond AMC ICICI Prudential Asset Management Company Limited Rating ☆☆☆ Risk Moderate Expense Ratio 0.8 Sharpe Ratio 2.79 Information Ratio 0 Alpha Ratio 0 Min Investment 5,000 Min SIP Investment 1,000 Exit Load 0-1 Months (0.5%),1 Months and above(NIL) Yield to Maturity 6.64% Effective Maturity 6 Months 11 Days Modified Duration 4 Months 24 Days Growth of 10,000 investment over the years.
Date Value 31 Oct 20 ₹10,000 31 Oct 21 ₹10,410 31 Oct 22 ₹10,833 31 Oct 23 ₹11,585 31 Oct 24 ₹12,446 31 Oct 25 ₹13,352 Returns for ICICI Prudential Ultra Short Term Fund
absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 7 Aug 22 Duration Returns 1 Month 0.5% 3 Month 1.6% 6 Month 3.2% 1 Year 7.3% 3 Year 7.2% 5 Year 6% 10 Year 15 Year Since launch 7.4% Historical performance (Yearly) on absolute basis
Year Returns 2024 7.5% 2023 6.9% 2022 4.5% 2021 4% 2020 6.5% 2019 8.4% 2018 7.5% 2017 6.9% 2016 9.8% 2015 9.1% Fund Manager information for ICICI Prudential Ultra Short Term Fund
Name Since Tenure Manish Banthia 15 Nov 16 8.97 Yr. Ritesh Lunawat 15 Jun 17 8.39 Yr. Data below for ICICI Prudential Ultra Short Term Fund as on 31 Oct 25
Asset Allocation
Asset Class Value Cash 59.71% Debt 40.29% Debt Sector Allocation
Sector Value Corporate 43.89% Cash Equivalent 39.51% Government 14.12% Securitized 2.49% Credit Quality
Rating Value AA 19.37% AAA 80.63% Top Securities Holdings / Portfolio
Name Holding Value Quantity 6.22% Govt Stock 2028
Sovereign Bonds | -4% ₹653 Cr 64,636,600 National Bank For Agriculture And Rural Development
Debentures | -3% ₹613 Cr 61,000
↑ 3,500 LIC Housing Finance Ltd
Debentures | -3% ₹600 Cr 6,000 364 DTB 15012026
Sovereign Bonds | -3% ₹496 Cr 50,000,000
↑ 50,000,000 RADHAKRISHNA SECURITISATION TRUST
Unlisted bonds | -2% ₹460 Cr 450 National Bank For Agriculture And Rural Development
Debentures | -2% ₹376 Cr 3,750 Small Industries Development Bank Of India
Debentures | -2% ₹352 Cr 35,000 Vedanta Limited
Debentures | -2% ₹301 Cr 30,000 Piramal Finance Limited
Debentures | -1% ₹277 Cr 27,500 India (Republic of)
- | -1% ₹250 Cr 25,000,000
Final Takeaway
Ultra Short Term Bond Funds offer the perfect middle path — higher returns than savings accounts, better liquidity than fixed deposits, and lower volatility than long-term bonds. They’re ideal for anyone who wants their money to stay accessible while still earning decent returns.
If you’re looking to make your idle cash work smarter — Ultra Short Term Funds deserve a place in your portfolio.
invest smart. Stay Liquid. Grow Better!
All efforts have been made to ensure the information provided here is accurate. However, no guarantees are made regarding correctness of data. Please verify with scheme information document before making any investment.
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Research Highlights for Franklin India Ultra Short Bond Fund - Super Institutional Plan